GETTING UP every morning to listen to the new announcements on inflation figures by the government has almost become a practice for us. On Friday, before noon, inflation figures are announced and thanks to the media and Internet that the information on rate of inflation spreads like a panic attack among employees in the offices. Gossip at the lunch table are now-a-days concentrated in and around inflation. Suddenly, we have become more serious about our economy (rather about our purse). The Office of the Economic Advisor (OEA), ministry of industries compile the Wholesale Price Index (WPI) numbers for all-India, on weekly basis.
And since quite a few months, our week ends while listening the sour figures of inflation and people are forced to obey some austerity measures, cut their eating out and shopping. Week back, shop owners were complaining about Indian Premier League (IPL) that due to these matches, people postponed their purchases and now shop owners may blame loose inflation, which is forcing the people to be indoor and watch TV, curtail their shopping and dinning out. It was told that during high inflation, it is better to curtail your expenses as better time may come when you buy the same gadgets at lower prices and even at discounts.
Every Friday, government’s industry ministry announces the rate, at which prices in the country are rising. Last week the department of Statistics exploded a bomb shell when it announced that inflation has now reached to a killing level of 11.05 per cent and there is no hope in near future when it will be below double digits. It was a historic steepest jump of 230 basis points in just a week. Everybody including the government was flat with this steep hike of inflation.
Though headline inflation (ie combined inflation of all the three classes of commodities, which constitute our WPI) stood at 11.05 but the index of primary articles has actually declined by 0.4 per cent but real culprit was fuel, power, light and lubricants segments, which observed a rise of 7.8 per cent, which pushes entire inflation to a 13-year high.
Worldwide there are two barometers, which measure at what rates the prices of commodities are rising in the economies. The two are WPI and Consumer Price Index (CPI). Most of the major economies like US, UK, Japan, France, Singapore and even our arch rival China have selected CPI as its official barometer to weigh its inflation. But our country, India, is amongst few countries of the world, which selected WPI as its official scale to measure the inflation in the economy.
Though WPI is an old measure (1902) compared to CPI (1970), wholesale price index measures inflation at each stage of production while consumer price index measures inflation only at the final stage of production. WPI is often seen as a comfortable tool to take measure against price rise by the policy makers as it gives direction before the commodity actually hits the market. WPI is available on a weekly basis with as short possible time lag of two weeks. So headline inflation figure announced on June 20, 2008, of 11.05 per cent is actually of June 7, 2008.
Indian government constructed its present WPI way back in 1993-94 (1993-94 series replacing 1981-82 bases) by making a basket of 435 commodities (and not prices of services) whose price rise and fall tells us about inflation. Out of these 435 items, ’primary articles’ (food items and non-food items like jute etc) contributes 98 items, “fuel, power, light and lubricants” 19 items and “manufactured products” 318 items. Primary article has assigned a weight of 22.02 per cent, fuel, power, light and lubricants has been given weight of 14.23 per cent while manufactured products has been give a weight of highest 63.75 per cent.
What are the flaws of WPI :
-
There is a huge difference between the provisional and final index figure and it is sometimes more than 100 basis points difference between provisional figure and final figure. So for the week ended April 12, 2008, the provisional figure of inflation was 7.33, which were revised as final inflation figure of 7.95 so there was an upward difference of huge 62 basis points. In such a sensitive data an error margin of 62-100 basis points does not seem a healthy error.
Though WPI helps in understanding of the movement of prices worldwide, CPI is known as the best and most well known indicator of inflation. Time has come when Indian government should value the benefit of CPI vis-à-vis WPI.
3.78 / 18 votes 
